BANK OF NEW ZEALAND V ANTHONY EDWARD KEANE HC AK CIV-2011-404-005482

BANK OF NEW ZEALAND V ANTHONY EDWARD KEANE HC AK CIV-2011-404-005482 [29 February 2012]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2011-404-005482[2012] NZHC 214BETWEEN BANK OF NEW ZEALANDPlaintiffAND ANTHONY EDWARD KEANEDefendantHearing: 17 February 2012Appearances: K Scott for PlaintiffDefendant in personG Bogiatto for Defendant given leave to withdrawJudgment: 29 February 2012JUDGMENT OF ASSOCIATE JUDGE MATTHEWSThis judgment was delivered by me at 11.30 am on 29 February 2012pursuant to Rule 11.5 of the High Court RulesRegistrar/Deputy Registrar_______________________________________________________________________________Solicitors:Buddle Findlay, PO Box 1433, Auckland 1140. Email: kara.scott@buddlefindlay.comscott.barker@buddlefindlay.comDefendant – Mr A E Keane, 32 Les Fisher Place, Pukekohe. Email: anton@integratedequity.co.nz[1] In this proceeding the plaintiff (the Bank) seeks summary judgment against the defendant (Mr Keane) pursuant to his guarantee of advances made by the Bank to Madlan Investments Limited (Madlan), together with interest to the date of judgment, continuing interest under the Judicature Act 1908, and costs on a solicitor/client basis. The sums now claimed represent residual debt after realisationof assets secured in favour of the Bank. The Bank's mortgagee sale of one of these assets, a property in Razorback Road, Bombay Hills, is at the centre of Mr Keane'sopposition to this application.[2] Mr Keane maintains he has an arguable defence to the Bank's claim on threebases, first, a breach by the Bank of its statutory duty to obtain the best price reasonably attainable at the time of sale for the Razorback Road property, secondly, oppressive conduct by the Bank under Part 5 of the Credit Contracts and Consumer Finance Act 2003, and thirdly, acting in breach of s 9 of the Fair Trading Act 1986 by various forms of misleading or deceptive conduct. Mr Keane also maintains that the discretion of the Court on entry of summary judgment should be exercised in his favour.[3] For summary judgment to be entered in its favour the Bank must satisfy the Court that the defendant does not have an arguable defence. The onus remains on the Bank at all times.1 Where, as here, liability for the sums claimed is demonstrated by the evidence (including exhibited documents) of the Bank which is not in dispute, an evidentiary onus is borne by Mr Keane to demonstrate a tenable defence on one or more of the bases pleaded in his amended notice of opposition. Then the question for the Court is whether the Bank has satisfied it that the defendant does not have a defence.2Background facts[4] In June 2007 the Bank and Madlan entered a mortgage facility agreement for the sum of $600,000. On the same day Mr Madlan executed a guarantee in favour of the Bank of the indebtedness of Madlan up to a limit of $3,500,000 plus interest and1 Pemberton v Chappell [1987] 1 NZLR 1.2 Auckett v Falvey HC Wellington CP296/86, 20 August 1986,MacLean v Stewart (1997) 11 PRNZ 66 (CA).costs. On 2 December 2009 the Bank and Madlan entered into a housing term loan agreement by which the Bank agreed to make available a facility of $1,615,000.[5] Security for the advances to Madlan was the guarantee of Mr Keane and a mortgage security over the Razorback Road property.[6] By August 2010 Madlan was in default of its obligations under both of these facilities, and others, with the result that the Bank made demand on Madlan for repayment. On 15 September 2010 it issued a demand to Mr Keane as guarantor ofMadlan's debt, and issued a notice under s 119 of the Property Law Act 2007 againstMadlan, in respect of the Razorback Road property. Neither Madlan nor Mr Keane complied with these notices. The Bank conducted a mortgagee sale of the Razorback Road property and in March 2011 sold it for $1,150,000. After settlement, and application of the sale proceeds to the expenses of sale and the outstanding indebtedness, the Bank made demand on Mr Keane as guarantor of the remaining indebtedness, $1,708,733.87. Subsequently the Bank has received a further sum of $62,167.02 from the sale of another property. The balance of indebtedness for which judgment is sought is $1,721,342.85 plus interest from 20 December 2011.[7] Before embarking on the sale of the property the Bank obtained a valuation report from Seagar & Partners, registered valuers and property consultants, dated 5 October 2010. After reviewing positive and negative features of the property, prevailing market conditions, comparable sales and the listing history of the property (to which I return later) the firm advised that:the wider range of possible price for the property under normal selling circumstances is from $1,800,000 to $2,400,000. In our opinion it is improbable that a figure toward the upper end of this range will be easily attained.[8] It then assessed a fair market value under normal market terms and conditions to be $2,100,000 inclusive of $50,000 for chattels and GST, if any. It estimated that if a mortgagee sale were conducted "a possible mortgagee price"would be $1,500,000.[9] As requested by the Bank the firm went on to summarise detrimental aspects of the property that may affect a sale.[10] The Bank then instructed Barfoot & Thompson, real estate agents, to inspect the property and present a marketing proposal. The resulting report dated 3 February 2011 recommended a sale process by tender. It estimated the current market value to be in the order of $1.4m and a mortgagee sale value to be in the order of $1.05m.[11] Mr Keane had placed the Razorback Road property on the market in September 2009. The property was initially listed with Boulgaris MacGuire without a specific price, but with indications of a price between $3,600,000 and $3,700,000. Later it was listed with Harcourts at $2,850,000, and at the time the Bank intervened it was listed with Ian Buchanan, a rural agent from Pukekohe, though the asking price was not provided in evidence. It was advertised for sale during this period ($40,000 was spent) and five open homes were held. Both Seagar & Partners, and Barfoot & Thompson, referred to the prior marketing of the property in their reports, the latter taking it into account in their recommendation on the method and terms of a sale campaign, and prospective sale price.[12] Mr Keane told the Court in submissions that in 2007 he commissioned and provided to the Bank a valuation for approximately $3.62m. He did not produce the valuation, but he referred to it in his affidavit as having been undertaken by Armitage-Law, valuers, and gave a figure of $3,650,000.The grounds of opposition[13] The first ground of opposition advanced by Mr Keane is that the Bank had failed in its duty under s 176 of the Property Law Act 2007, which is in the following terms:176 Duty of mortgagee exercising power of sale(1) A mortgagee who exercises a power to sell mortgaged property, including exercise of the power through the Registrar under section187, or through a court under section 200, owes a duty of reasonable care to the following persons to obtain the best price reasonably obtainable as at the time of sale:(a) the current mortgagor:(b) any former mortgagor:(c) any covenantor:(d) any mortgagee under a subsequent mortgage:(e) any holder of any other subsequent encumbrance.(2) A mortgagee who exercises a power to sell mortgaged property may not become the purchaser of the mortgaged property except in accordance with section 196 or an order of a court made under section200.[14] Mr Keane's principal criticism was that the Bank accepted a sale price which was less than a third of the valuation he said had been obtained in 2007. He also noted that the Bank had accepted a sale price which was below the estimated realisation, under mortgagee sale conditions, of $1,500,000 assessed by Seagar & Partners, and criticised the Bank for agreeing to what he described as a compressed marketing programme of only four weeks which he believed to be inadequate for a property of this kind. In support of this he referred to the Seagar & Partners'valuation in which, at paragraph 12.1, the firm stated:The property is one which would be best marketed with a non specific asking price (as has been attempted), but also with a lengthy or potentially open-ended listing period to allow time to attract what in our opinion will likely be the small number of purchasers who require all the features the property presents and who will be prepared to pay a fair price for same. It is our view that should a short period of sale be required, particularly an auction, the chances of attracting such a buyer are limited even given the advertising that has occurred to date.[15] In response to this the Bank filed an affidavit from Mr P R Humphries, the real estate agent with Barfoot & Thompson who was responsible for conducting the sale. He said that he recommended a four week promotional period because in his experience (22 years, including 21 years principally involved in marketing by way of mortgagee sales) it is an appropriate length of time to allow the market to be tested, to allow interest in the property to be established and maintained through until the date tenders close, and because the property had already been on the market for a long period and a considerable sum of money had already been spent on marketing. Given that during the period of prior exposure to the market no formal offers hadbeen received for the property, he said that any further extended exposure to the market beyond four weeks would have been redundant.[16] Mr Humphries then outlined the advertising which had been undertaken, advised that the firm had received 65 telephone enquiries and undertaken 40 buyer inspections, and conducted three open homes. He stated that because of a strong level of interest generated through the promotional programme the market had been fully tested by the end of the four week period, and consequently the price achievedwas a realistic reflection of the property's value under the prevailing conditions ofsale. Two tenders were in fact received, negotiations ensued with both and one tenderer increased the initial tender offer to the price for which the property was eventually sold, $1,150,000.[17] Apart from expressing his own views on this issue, Mr Keane did not lead any evidence to support his contention.[18] Counsel for the Bank submitted that s 176 requires a mortgagee to exercise"reasonable care ... to obtain the best price reasonably attainable as at the time ofsale", and does not impose on a mortgagee an absolute obligation to obtain the bestprice reasonably attainable. Rather, the focus is on the sale process to determine whether reasonable care has been exercised with a view to obtaining the best price reasonably attainable: it is not on the outcome.[19] Counsel submitted that five principles govern the Court's consideration of theBank's conduct, to determine whether there has been a breach of this duty:(a) First, a mortgagee is entitled to act purely in its own interests when deciding if and when to sell a property.3(b) While appointing a competent agent to sell does not automaticallydischarge a mortgagee's duties, doing so will usually go a long way towards discharging the mortgagee's duties.43 Downsview Nominees Ltd v First City Corporation [1993] 1 NZLR 513,Agio Trustees Co Ltd v Harts Contributory Mortgagees Nominee Co Ltd (2001)4 NZ ConvC 193,480.4 Public Trust v Ottow (2010) 10 NZCPR 879 at [31].(c) Proper care must be taken to expose the property to the market by advertising with an adequate description of the property's attributesand, within reason, widely enough to attract all possible purchasers. When the mortgagee has undertaken a marketing campaign designed by a professional real estate agent with the appropriate expertise and experience in such matters and when such independent professional advice has been obtained and an orthodox sale process is undertaken, the Court should not then second guess the course adopted by the mortgagee.5(d) Obtaining a valuation report from an experienced valuer as a guide to the price which could reasonably be expected from the property may also indicate that the mortgagee has made reasonable efforts to obtain the best reasonably obtainable price.6(e) If there is a discrepancy between the sale price and the valuer's opinion then whether there has been a breach of a duty of care must be assessed by considering factors that provide an indication of the reliability andaccuracy of the valuer's report. Further, if the mechanism adopted forthe mortgagee sale properly tested the market, then the results obtained at auction, rather than the opinion of the valuer, must be taken as demonstrating what the market value of the property was.7[20] In relation to the first of these propositions, Mr Keane criticised the Bank for proceeding to a mortgagee sale at a time when the market was, on the evidence available to the Bank, at a low point for properties of this kind. However, given that a mortgagee is entitled to act in its own interests when deciding if and when to sell the property, and given that the Bank was at that time owed in excess of $1.7m secured against the property which had been on the market for over a year without an offer being received, the Bank cannot be criticised for making its decision to sell when it did.5 Taylor v Westpac Banking Corporation (1996) 5 NZBLC 104,104 at 104,108.6 Public Trust v Ottow (2010) 10 NZCPR 879 at [31].7 Mitchell v Trustees Executors Ltd [2011] NZCA 519 at [68].[21] In relation to the second, there is no evidence to suggest that the real estate agent appointed to sell the property was other than experienced and reputable –indeed the evidence points clearly to the agent having extensive experience over a period exceeding two decades.[22] In relation to the third principle, the Bank adhered to the marketing campaign designed by the real estate agent, an orthodox sale process by tender was undertaken, and no independent evidence was led by the defendant to suggest that the marketing promotion period of four weeks was too short. Professional advice took into account the earlier extensive marketing and promotional period. There was no conflicting evidence before the Court on the correctness of the course adopted by the Bank.[23] In relation to the fourth and fifth principles stated above, the mortgagee did commission a valuation report from an experienced valuer. Having considered theissues put to the valuer by the Bank, and the valuer's analysis of those issues and advice, I am satisfied that this report, in addition to the real estate agent's report,indicate that the Bank made reasonable efforts to obtain the best reasonably obtainable price. Whilst the price obtained was $350,000 below the indication from the valuer of the price which could be expected, it is higher than the price indicated by the real estate agents, and both firms drew attention to aspects of the market at the time, for properties of this nature, and to aspects of the property itself, which might affect the price obtained. In the event, it appears that they did so. There was no evidence to suggest that the mechanism adopted for sale of the property did not fully test the market. Thus the result obtained by negotiation after the close of tenders must be taken as demonstrating the market value of the property.[24] Very limited weight can be given to the 2007 valuation of the property which Mr Keane described to me. First, it was not produced to the Court, nor its author identified. Secondly, that market assessment was approximately four years before the events under scrutiny in this case. Thirdly, there was no evidence that it made an assessment of the market value of the property under mortgagee sale conditions. Whilst it is easy to understand how Mr Keane may have had it in his mind throughout that his property remained worth a sum in the order of $3m, competent independent professional advice obtained by the Bank about the likely sale price ofthe property put it between $1,050,000 and $1,500,000. The price obtained was within, even if at the lower end of, that range.[25] Accordingly I find that a defence to the claim based on alleged breach of theBank's duty under s 176 is not arguable.[26] The second ground of opposition advanced by Mr Keane alleges oppressive conduct by the Bank under Part 5 of the Credit Contracts & Consumer Finance Act 2003, with the result that the credit contracts should be reopened and appropriate orders made, which might include orders that any obligation which Mr Keane may have to the Bank be extinguished, revised or altered. In the amended notice of opposition the circumstances relied upon by Mr Keane for such orders are the adoption by the Bank of a short marketing period for the sale of the property, accepting an offer contrary to the valuation advice obtained by the Bank, and failing generally to conduct the marketing programme for the sale of the property in a manner conducive to obtaining the best price obtainable as at March 2011. It will be seen that these grounds mirror those put forward in support of the alleged offence under s 176 of the Property Law Act.[27] Section 118 of the CCCFA is in these terms:118 Meaning of oppressiveIn this Act, oppressive means oppressive, harsh, unjustly burdensome, unconscionable, or in breach of reasonable standards of commercial practice.[28] In Mitchell v Trustees Executors Ltd, the respondent had obtained summary judgment against the appellant as guarantor of an advance made by the respondent. As in this case, a property over which security for the advance had been given had been sold by mortgagee sale, and the claim was for the balance. As here, also, it was argued that the respondent had breached a duty under the Property Law Act, and breached the oppression provisions of the Credit Contracts & Consumer Finance Act 2003 (CCCFA).[29] In that case counsel for the appellant submitted that the respondent's conducthad fallen below reasonable commercial standards, because it did not comply withthe requirements imposed on a mortgagee in possession by the Property Law Act. The Court noted that the factual grounds advanced in relation to the argument underthe CCCFA had "a degree of overlap" with those relied on in relation to the allegedbreaches of duty of a mortgagee in possession under the Property Law Act. The principal concern of the appellant in that case was the timing of the sale of a secured property. When dealing with arguments advanced under the Property Law Act, the Court had decided that the respondent was entitled to choose the most propitious time to sell the unit. It noted that there was nothing advanced to show that its choice of timing was not in accordance with reasonable commercial practice.[30] A similar position applies in this case. Here Mr Keane has advanced the same grounds of criticism of the Bank's conduct in support of his pleaded defence under the CCCFA, as he did under the Property Law Act, and I have determined that no breach of the duty under that Act has occurred. As in Mitchell, nothing furtherhas been advanced to show that the Bank's activities were not in accordance with reasonable commercial practice or were, for some other reason, oppressive as defined in s 118 of the Act. The Court of Appeal concluded its comments on this portion of the case with this passage:When pared back to its core the argument is that a failure by a lender to comply with the regulatory requirements of the Property Law Act renders its conduct as mortgagee oppressive in terms of the CCCFA. No authority was cited in support of that proposition, and we are satisfied that it is not reasonably arguable.[31] Exactly the same may be said for the position of Mr Keane in this case. Accordingly I am satisfied that he does not have an arguable defence founded on oppressive conduct under the CCCFA.[32] The third ground of defence alleged by Mr Keane is a breach by the Bank of s 9 of the Fair Trading Act, which prohibits misleading and deceptive conduct when acting in trade. Again, in his amended notice of opposition, Mr Keane relied on the same factual assertions to support this allegation, and again, no argument was advanced to expand on the bald assertions in that document. Apart from anything else, nothing in the material put before the Court defined who was said to have been misled or deceived, nor was it explained how the pleaded shortcomings in themarketing process might in fact have been misleading or deceptive, or been capable of so doing.[33] Even if it is assumed that Mr Keane is the person who is said to have been misled or deceived, (and acknowledging that it is not necessary to demonstrate that he was in fact misled or deceived). I agree with the submission on behalf of the Bank that the conduct complained about is not capable of being misleading or deceptive. I am satisfied that it is established that Mr Keane does not have an arguable defence to the summary judgment on this ground.[34] Finally, Mr Keane alleges in his amended notice of opposition that the discretion of the Court should be exercised against the granting of summary judgment in favour of the Bank. Although the Court has a discretion, as with all discretions it must be exercised in a principled way. It is established that there is little scope for the exercise of the discretion against entry of summary judgment where there is no suggestion of injustice.8 In his submissions Mr Keane outlined to me his strained financial circumstances and reduced quality of life resulting from thecalling up of the Bank's guarantee and its subsequent steps to recover its advances.Mr Keane was trenchant in his criticism of the Bank. However, taking into account all of the facts placed before the Court, there is no foundation for a view that any injustice will result from the entry of summary judgment. Whilst I recognise the pressure upon Mr Keane and his family that the events outlined have caused, it has been established that there are no arguable defences to liability to the Bank, so even if summary judgment were not entered now, the entry of judgment after trial is an inevitable outcome. The Bank was entitled to invoke the summary judgment procedure and it would be unjust to the Bank to now deny it summary judgment in this case.Outcome[35] I enter summary judgment for the Bank for the sum of $1,734,404.00 plus interest on that sum from 28 February 2012 to the date of judgment. The plaintiff is8 Sudfeldt v UDC Finance Ltd (1987) 1 PRNZ 205 (CA), European Asian Bank AG v Punjab &Sind Bank (No 2) [1983] 2 All ER 508 at 514-515.entitled to interest to judgment at 6.4 percent per annum on the debt under the mortgage facility, and 6.49 percent per annum on the debt under the housing term loan.[36] I declare that the Bank is entitled to interest at 5 percent per annum on the judgment sum from the date of judgment until the date of payment in full.[37] The Bank is entitled to solicitor/client costs as pleaded, together with disbursements in a total sum of $16,362.73._______________________J G MatthewsAssociate Judge